With annual general rate increases on the horizon, now is a great time to review and optimize your small parcel contract. With a proactive approach, effective data analytics can help you identify savings opportunities and lower shipping costs.

Whether it’s earned discount tiers, residential delivery surcharge discounts or DIM pricing, there are many things that can be negotiated during a parcel contract negotiation. Performing an audit of your invoice data and shopping around can lead to substantial savings. Keep reading the article below to learn more about Small Parcel Contract Negotiation.

Shipping costs are an unavoidable business expense, but it’s a cost that can be reduced with proper planning and execution. Effective carrier contracts, leveraging automation, implementing parcel invoice audits, and utilizing data analytics are all key components to an effective parcel spend management strategy. But one of the most undervalued and underestimated tactics in successful parcel contract negotiations is preparation.

It’s common for logistics managers to stop thinking about their shipping rates once a contract is signed. But in a time of volatile fuel prices and ever-changing service options, it’s essential to regularly review and negotiate parcel carrier contracts to ensure you’re receiving the most value for your dollars spent on postage.

While it’s not always easy to rework an existing agreement, with the right strategy and preparation, it is possible to improve your current rates and negotiate a deal that works for you and the carrier. In order to effectively negotiate a rate, it’s important to understand the overall shipping environment and current year’s GRI’s. Additionally, it’s critical to know your own shipping profile and how to leverage data trends such as volume, service mode, zone, package weight/dimensions, commercial vs. residential, and accessorial exposure to lower your rate.

Having clear, effective communication with the carrier during this process is also crucial. Both parties must be able to clearly articulate their positions and provide perspective in order for the discussion to be productive. If you’re not able to work through your differences with the carrier, it may not be in your best interest to pursue a solution through the same channel.

Using internal data such as your own parcel invoices and an AI-powered software like ShipSigma to perform a parcel invoice audit is a great way to get a detailed picture of what you are currently paying for and the current market rate. This information will allow you to enter the negotiation knowing exactly what you are willing to pay and how much yearly savings can be gained by negotiating an ideal rate with the carrier. This level of insight into your shipping data will give you a competitive advantage and help you reach an equitable solution that benefits everyone involved.

Know What You Want

When negotiating with carriers, you need to know exactly what your objectives are. This includes your goals for cost savings, service levels, and overall efficiency. Getting to this point requires a thorough analysis of your shipping data to identify areas where optimizations can be made.

Analyzing your shipping data can uncover a variety of opportunities for reducing the number of carrier agreements, optimizing packaging, and leveraging automation to lower costs. Performing a shipping audit can also reveal billing mistakes, errors in rates and surcharges, and other unnecessary expenses on your parcel invoices.

A comprehensive, data-driven approach to parcel spend management can help you secure better terms in negotiations with your small parcel carriers. This will help you control your parcel costs and optimize the quality of your shipping operations.

Carrier contracts set specific rates and fees that are a foundation of your parcel spending. These agreements can include loyalty or volume discounts, fuel and accessorial fee surcharges, a cap on GRIs, early termination penalties, and more. To get the most out of your parcel contract negotiations, you must fully understand what is currently in place as well as current industry trends to understand where you can make improvements.

While most small parcel account managers are trained to be reactive to requests for pick-ups, claims, account number adds/deletes, and billing issues, you can take a proactive role in your carrier relationships by being willing to negotiate your rates. Taking initiative can help you build strong relationships, gain valuable insight, and secure more favorable shipping terms in your next negotiation cycle.

Having an objective strategy in place before you sit down to the bargaining table is essential to success. This includes a detailed understanding of your current shipping profile, including volume, zone, service mode, package weight/dimensions, commercial vs. residential, and more. This allows you to identify the most effective negotiating positions and strategies.

It is critical to stay up-to-date on the current shipping environment, particularly in a post-COVID world where capacity is limited and carrier prices are increasing rapidly. Having this knowledge allows you to be confident in your ability to advocate for your company and to ensure that the agreement you receive is a fair price for your shipping volumes.

Be Prepared to Change Your Mind

When negotiating with parcel carriers, it’s important to keep the overall net impact in mind. It’s easy to become too aggressive about getting a discount on one particular rate or charge and overlook the fact that it might have a negative impact on your shipping costs in other ways.

It’s also important to remember that you can renegotiate your contract at any time. Even if you have a great working relationship with your carrier, it’s possible that rates aren’t in alignment with your business needs anymore. In addition, it’s possible that new technology is available that could improve your supply chain efficiency and potentially save you money on your shipping costs.

For example, if you’re currently paying for dimensional weight billing and your parcel volume has dropped, it’s possible that you could negotiate a reduction in these charges based on actual shipment data. The best way to determine what you should negotiate is to analyze your shipping volumes and carrier invoices through a comprehensive parcel audit.

A well-executed parcel audit and negotiation process can save you a significant amount of money on your shipping costs, which is a major expense for companies relying on logistics. This is especially true when the right strategies are used to secure loyalty or volume discounts, or to reduce fuel or accessorial fee surcharges.

While it’s important to be firm during a parcel contract negotiation, you should always strive to preserve the relationship and not burn any bridges. Ultimately, this will help you to achieve consistent savings, and ensure that your carrier contracts continue to work for you as the market changes.

Negotiate With Confidence

As with any negotiation, preparing for your discussion is essential. Understanding your own shipping profile and the data trends behind it will help you to build a case for your position as the negotiating table. Taking the time to research the carrier’s perspective will also enable you to identify opportunities for compromise and offer mutually beneficial solutions.

Lastly, it is essential to enter the conversation with a positive and collaborative attitude. This is your opportunity to make a connection with the person with whom you will be interacting and will have a direct impact on the outcome of the conversation. By building a partnership, the carrier may be more willing to go the extra mile and give you the concessions you need to reach a win-win solution for both parties.

It is important to be clear and specific when defining your request, as general requests are often easily dismissed. Additionally, be prepared to provide multiple options if your first proposal is rejected. This will demonstrate your confidence in the value of your proposal and can open the door for a better solution.

The goal of your small parcel contract negotiation is to achieve a win-win result. A successful agreement benefits both parties and provides cost savings, improved service terms, and a stronger relationship moving forward. However, this process can be difficult without the right resources at your disposal.

To successfully navigate a parcel contract negotiation, you need the tools to bring transparency and clarity to your shipment costs. This includes access to your own data as well as external data, such as ShipSigma’s AI-powered platform that manages and provides insights from over a billion dollars in shipping spend.

Bringing your own data to a carrier contract negotiation can help you to secure consistent and significant shipping cost reductions. But if you’re not familiar with the process, it can be easy to fall into common mistakes during the negotiations that will lead to a one-sided agreement in favor of the carrier. Using these six tips to prepare for your next rate negotiations will set you up for success and ensure that the terms of your agreement meet your business needs.